MARKET SNAPSHOT

Friday, July 12, 2019
By Dr. Nancy Yamaguchi

Oil prices rebounded this week, recapturing the $60/b level for the first time in seven weeks. Although U.S. crude production hit a new record, oil inventories fell sharply. Geopolitical tensions continue in the Gulf, as Iranian military boats attempted to seize a British tanker. WTI crude prices opened this morning $3.08/b (5.4%) above last Friday’s level. Prices this morning are roughly flat. Our weekly price review covers hourly forward prices from 9AM EST Friday July 5th through 9AM EST Friday July 12th. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.

GASOLINE PRICES

Gasoline opened on the NYMEX at $1.921/gallon on Friday July 5th, and prices climbed to an open of $1.9895/gallon on Friday July 12th, a significant increase of 6.85 cents (3.6%.) Gasoline forward prices been on a downward trend, bottoming out at their lowest levels since February. The closure of the PES refinery in Philadelphia started a gasoline price rally that stacked atop the already strengthening crude prices. PES announced that it would not rebuild the refinery, and the government demurred to spend more public money saving it. Gasoline prices are flattening this morning, with trades occurring mainly in the range of $1.97-$1.99/gallon. The latest price is $1.9803/gallon.

 

DIESEL PRICES

Diesel opened on the NYMEX at $1.9026/gallon on Friday July 5th and opened on Friday July 12th at $1.9842/gallon, a major weekly increase of 8.16 cents (4.3%.) Diesel prices have surged with renewed geopolitical tension, weather, and the tighter outlook for supply-demand balance. Despite a small price decline last week, the past four weeks have seen prices rise by 17.5 cents/gallon. This recouped more than half of the previous four week’s downward spiral that slashed diesel forward prices by 31.81 cents/gallon. Diesel prices are flat this morning, with contracts currently trading in the $1.97-$1.99/gallon range. The latest price is $1.9795/gallon.

WEST TEXAS INTERMEDIATE PRICES

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday July 5th at $57.38/barrel and opened at $60.46/barrel on Friday July 12th, up by $3.08/b (5.4%.) This more than recouped last week’s loss of $1.84/b. Nonetheless, prices remain unusually subdued, recalling that prices in June fell by nearly $6/b. This morning, crude prices are flattening, and they are struggling to stay above the $60/b level. Prices fell below $60/b seven weeks ago, and they have not cracked through that barrier until this week. WTI is trading mainly in the range of $59.90/b-$60.50/b. The latest price is $60.42/b.

PRICE MOVERS THIS WEEK : BRIEFING

Oil prices regained the territory above $60/b for the first time in seven weeks. WTI crude prices rose by over $3/b this week. Prices began to rise when Iran attempted to seize a British tanker near the Strait of Hormuz. The attempt failed when the tanker was defended by a Royal Navy frigate. The move was said to be retaliatory, following the seizure of an Iranian tanker near Gibraltar. The British Foreign Secretary is working to calm the situation, stating that the U.K. is not seeking conflict with Iran. Today, prices are flattening, and WTI has been dipping below $60/b again.

The U.S. Energy Information Administration (EIA) reported that U.S. crude oil production rose to new record high in April, averaging 12.2 million barrels per day (mmbpd.) During the week ended July 5th, crude production was estimated to have risen to 12.3 mmbpd. This was down from the weekly record-high 12.4 mmbpd reported for the week ended May 31st.

The week brought a major drawdown from U.S. oil inventories. On Tuesday, the American Petroleum Institute (API) reported a drawdown of 8.1 million barrels (mmbbls) from crude oil inventories plus a small draw of 0.257 mmbbls from gasoline inventories. Diesel inventories rose by 3.7 mmbbls. Official statistics were more bullish. EIA reported an inventory drawdown of 9.499 mmbbls of crude oil plus 1.455 mmbbls of gasoline. Diesel inventories rose by 3.729 mmbbls. The net drawdown was 7.225 mmbbls.

The Gulf Coast is bracing for stormy weather, as Tropical Storm Barry approaches Louisiana. Gulf Coast companies have shut in production and evacuated staff. Phillips 66 shut down its Alliance, Louisiana refinery and evacuated staff. Although measured wind speeds are below official hurricane levels, the storm front is moving over immense areas of warm water, and it is expected to bring torrential rains to the Gulf Coast states.

OPEC reported that its crude production fell in June by 68,000 bpd. The largest monthly drop in production, 142,000 bpd, occurred in Iran. Outages in Libya cut 58,000 bpd from its output. Production rose in Saudi Arabia and Nigeria. OPEC announced that it will continue its production cut agreement into 2020. Market experts, including those at the International Energy Agency (IEA,) believe that the cuts will need to go deeper to offset slower demand growth.

The Pennsylvania government will not use public funds to finance recovery efforts for the Philadelphia Energy Solutions (PES) refinery. The refinery has been important to the local economy, providing over 1000 jobs. But it has changed hands several times in recent years. It declared bankruptcy in 2018, citing high compliance costs under the Renewable Fuel Standards, though its financial struggles had deeper roots.